imagine an owner of a firm is thinking about raising prices. Describe the conquences of doing...

imagine an owner of a firm is thinking about raising prices. Describe the conquences of doing so as a monoplist, oligopolist, monopolistic competitor, and prefect competitor?

Expert Solution

MONOPOLIST FIRM

Under monopoly there is only a single player in the market. The market is restricted from free entry and exists. Thus the owner has the complete authority to decide the price of commodities offered by him. The firm is able to earn supernormal profit by increasing the price of goods sold in monopoly. However, the firm will become inefficient because of lack of competitors in the market. The firm gets huge profits to retain in the business butt it will not be long lasting. The innovative and creative capacity of the firm reduces due to lack of competition. Thus people will refuse to buy normal goods with in high rate in future.

OLIGOPLIST FIRM

Oligopoly market consists of small number of sellers. When a firm raises the price of goods in the oligopoly market, the remaining firms will not increase the price of goods. It will create huge loss for the firm which increased the price. The consumers will refuse to buy products from the shop though the similar products are available in the market at low price. Thus an increase in price of commodities will not benefit the entrepreneur. Price rise is not a solution for earning profits in oligopoly.

MONOPOLISTICALLY COMPETETIVEE

Monopolistically competitive market consists of large numbers of dealers. It is a form off market with high competition. If a firm decides to raise the price of goods in a monopolistically competitive market the demand for products decreases. The firm will not get any benefit because customers start purchasing the goods from other firm in the market. In monopolistically competitive market all the firms are considered to be price takers. Thus the firm which increases the price will face huge loss.

PEREECT COMPETITION

Perfect competition is the form of market where the numbers of sellers as well as buyers are comparatively high. Usually in perfect competition there is an equilibrium price at which the firms offer their products. If a firm raise price apart from this the customers will shift to shops of competitors. The buyers will not buy goods from the firm though they have several other options. The result of price raise in ,monopolistically competitive and perfectly competitive firm are almost same. It is not safe for the single firm to increase the price.

Rahul Sunny answered 1 year ago

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